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Tuesday, July 24, 2012

Associations to CFPB: Be careful with prepaid

In response to the Consumer Financial Protection Bureau's request for industry input on how the agency should go about regulating the prepaid card industry, the National Association of Federal Credit Unions and the Electronic Transactions Association counseled caution.

In a letter to the CFPB, the NAFCU advised it do nothing. The NAFCU said credit unions are in the process of making changes to lending and debit card programs mandated by the Dodd-Frank Act of 2010 and do not need more regulatory burdens placed on them to also reconfigure prepaid card programs.

"Given the substantial amount of time, energy and resources that will be required to comply with the numerous statutorily mandated provisions in the Dodd-Frank Act, the CFPB should attempt to minimize the regulatory burden on small financial institutions such as credit unions," stated the NAFCU in its letter to Monica Jackson in the CFPB's Office of the Executive Secretary.

The NAFCU believes that if the CFPB is intent to push forward with regulating open-loop, network-branded, general purpose reloadable (GPR) prepaid cards, the bureau should allow the industry "adequate time to comply with the several different rulemakings already statutorily required under the Dodd-Frank Act."

The association said the CFPB should pay special attention to the cumulative effect each new regulation has on small credit unions. For example, by mandating that financial institutions (FIs) provide GPR cards that link to savings accounts, the CFPB may cause the unintended consequence of driving small credit unions out of the GPR card market due to the added burdens of implementing and operating such programs.

The NAFCU recommended the CFPB allow for a "significant" period of time between the publication of a final rule and the deadline for FIs to comply with it. One reason for this is that GPR cards do not have "typical inventory replacement cycles," which means it takes longer for FIs to "exhaust" existing but noncompliant GPR cards and stock new cards that comply with the new regulations, the NAFCU said.

The association added that the "costs to industry of discarding otherwise useable card stock would be potentially quite large." The letter can be accessed at www.cuinsight.com/456/media/news/nafcus_comments_to_cfpb_on_reloadable_prepaid_card.html .

ETA concerned about underserved

The ETA focused its opinion on how CFPB regulations of GPR cards might affect the large consumer segment known as the financially underserved. “For consumers, particularly the underbanked, reloadable prepaid cards are vital tools that ensure that our nation's financial systems are accessible to all," said ETA Chief Executive Officer Jason Oxman.

The ETA recommended that the CFPB:

  • Avoid regulation that would increase the cost to consumers for using GPR cards
  • Support full, clear and standardized fee disclosures associated with each card
  • Seek comments from industry stakeholders about how they would implement new regulations

The full text of the ETA's comments can be found at: www.electran.org/docs/gr/eta_cfpb_comments_7-23-12.pdf . end of article

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